Gauging impact of US FATCA on corporate compliance practice

Found at the heart of the US Foreign Account Tax Compliance Act (FATCA) are the information reporting and tax withholding systems, that is to say they require foreign financial institutions to report to the US Internal Revenue Service (IRS) information on the foreign accounts of US taxpayers or information on the financial accounts of foreign entities that have substantial US owners. Foreign financial institutions that fail to comply with their information reporting obligations will be assessed 30% withholding tax on certain income (stock dividends, interest, insurance premiums, etc.) sourced from the US.

The subjects of reporting specified by FATCA include such taxpayers as US citizens, US green card holders, holders of specific US visas, etc. Regardless of whether they are actually resident in the US, all such persons are required to file a Report of Foreign Bank and Financial Accounts (FBAR) with the IRS to report their global income, including their foreign assets, foreign companies, foreign trusts and gifts. If there is at least one financial account outside the US in which a taxpayer has a financial interest, or over which he or she has signature authority, and if the total value of all of his or her foreign financial accounts exceeds US$10,000 at any time during the filing year, he or she is required to file an FBAR in accordance with regulations.

Under pressure from the IRS, United Bank of Switzerland (UBS) provided the names of more than 4,450 US customers in August 2009 and paid a fine of US$780 million, reaching an out-of-court settlement. Germany, Italy and other countries also applied pressure on UBS, demanding that it publish the names of suspected tax fraudsters.

Dong Jinsong is a senior partner and Fan Xiaoliang is an associate at AllBright Law Offices